US Open – Santa Rally, 2020 expectations, Oil’s mixed outlook, Gold turns bullish

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Markets officially entered holiday as trading volumes remain very thin and as Wall Street prepares to take the rest of the week off.  The Santa rally starts today and if it delivers its typical holiday rally, could produce a 1.3% gain over the next seven trading days.  Trading today will unlikely produce any meaningful moves with both the stock market closing early at 1pm and bond trading at 2pm.

This Christmas Eve will not mimic last year, when we saw US stocks collapse with the S&P 500 falling into bear market territory.  This holiday period should be rather calm as trade updates appear very constructive as we near the finalization of the phase-one trade deal next month.  The reason we won’t see a repeat of last year is because there are no fears of any of the major central banks tightening policy anytime soon.     

The playbook for 2020 will be for stocks to rise higher as markets firmly believe the Fed will be on hold, credit markets are healthy, the consumer is strong and some of the key headwinds in 2019 are becoming tailwinds. 

The S&P 500 index could target $3,400 next year, but likely begin to falter post 2020 election as recession risks begin to surface.  The first half of the year should be filled with a ton of optimism with a global rebound in manufacturing that will see a broader rally that should also seeing the dollar continue to weaken. We have not seen a GDP recession this year and chances are we won’t in 2020, but a profits recession will hurt the corporate sectors cash flow, which is already heavily leveraged.

Oil

Both WTI and Brent prices are entering holiday mode holding above $60 and $65 respectively.  News has been slow on the oil front with some focus falling on the new accord between Saudi Arabia and Kuwait that could bring 500,000 barrels per day to the market.  Non-OPEC production is also getting more attention as Guyana ramps up their production and will possibly produce 750,000 barrels per day by 2025. 

The consensus in 2020 for oil prices is rather mixed, with a slight lean towards the downside.  Oil prices will be weighed upon rising global crude stockpiles next year, but improving demand that will stem softer trade tensions, a falling US dollar, and considerable geopolitical risks should keep prices rising higher in 2020. 

Gold

Gold is sneakily turning bullish as we approach year end.  Gold has withstood a wrath of trade optimism that has made many investors question the need for safe-havens.  The 2020 outlook for gold is starting to look very bullish as strong central bank demand is firmly in place, the dollar could continuing falling in the first half of the year, the Fed is on hold and the next move is still likely to be further accommodation as deflationary pressures seem likely to return, and we will unlikely see a broader trade deal between the world’s two largest economies until after the 2020 Presidential election. 

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